Shanghai shipping slump as IMF warns China on euro slump [Telegraph]

An attempt to force China’s hand or affirmation of just how intertwined we all are?

The IMF warns China that it is vulnerable to the “clear and present danger emanating from Europe” which would see Chinese growth halve to roughly 4% if the crisis escalates.

For the actual report by the IMF (prepared by the IMF Resident Representative Office in the PRC, go here.

It states:

‘A storm emanating from Europe would hit China hard* China’s growth rate would drop abruptly if the Euro area experiences a sharp recession* But China has room for a countervailing fiscal response, and should use that space* Unlike 2009–10, any stimulus should be executed through the budget rather than the banking system’

Further reading – do note that as of the morning of February 7th, China’s national broadsheets have not yet taken notice:

China’s economic expansion would be cut almost in half if Europe’s debt crisis worsens, a scenario that would warrant “significant” fiscal stimulus from the nation’s government, the International Monetary Fund said.

The shipping data came as the International Monetary Fund warned that China is vulnerable to the 'clear and present danger emanating from Europe'. Photo: ALAMY

The shipping specialist Lloyd’s List said container traffic through the Port of Shanghai – the world’s largest – fell by 100,000 boxes in January from a year earlier, or 4pc. Volumes fell by over one million tonnes.

The figures may have been distorted by China’s Lunar Year but there has been a relentless slide in the Shanghai transport data for months.

“China’s shipping markets face grievous challenges,” said the Shanghai International Shipping Institute. It acknowledged that the industry in the grip of downturn and likely to face a “worsening situation” in early 2012.

The biggest falls in container volumes have been on the Asia-Europe route.

The data came as the International Monetary Fund warned that China is vulnerable to the “clear and present danger emanating from Europe” and could see growth halve to roughly 4pc if the crisis escalates.

“China’s growth rate would drop abruptly if the euro area experiences a sharp recession. In the unfortunate event such a downside scenario becomes reality, China should respond with a significant fiscal package,” it said.

A fall in global growth by 1.75 percentage points would cut Chinese growth by more than twice as much unless Beijing took active steps to counter the shock, showing how distorted China’s economic model has become.

“China would be highly exposed through trade linkages,” it said. The report is a none-too-subtle reminder that China has a huge stake in Europe’s stability and should be ready to stump up more money for an IMF-led rescue.

The Fund said China had “ample room” to boost stimulus by 3pc of GDP if need be, but warned against another credit blitz through the banking system or fresh infrastructure projects.

“China still has a long way to go to digest the side effects of the surge of credit unleashed in the wake of the global crisis. A large external shock would bring many of these domestic risks more forcefully to the forefront,” it said.

The IMF fears that China had already pushed debt to safe limits. The ratio of loans to GDP has doubled to almost 200pc over the last five years – a larger jump than in the US during the sub-prime bubble.

Much of this leaked into property, exacerbated by interest rates on deposit accounts last year of minus 3pc in real terms that pushed investors into hard assets.

Credit curbs have punctured the bubble, but there are worries that this could go too far. Top developer China Vanke reported a 39pc fall in home sales in January, while Guangzhou R&F recorded a 57pc drop.

“Things will be very difficult in 2012: it will be a winter and a test for the entire industry,” said Mao Daqing, Vanke’s vice president. A price war before Christmas failed to halt the crash in sales.